W.D. Gann, a successful stock and commodity trader, developed multiple technical analysis tools based on geometric angles. These were used to draw lines on charts to help identify important support and resistance areas where each angle was a division of time and price. These angles, when drawn in groups, are what make up the Gann fan, which is a useful indicator for all technical traders. Based on Gann’s geometric angles, it can be used to identify important support and resistance levels as well as measure relative performance.
Gann fan application is rooted in basic trendline analysis, which is instructive in understanding how and why the Gann fan is used. A quick review — focusing on the elements that apply to Gann’s approach to trading — will lay the foundation for a discussion about Gann fans.
Trendlines are one of the most accessible and most widely used tools in technical analysis. They typically are drawn during directional market price movement. An uptrend is drawn up and to the right as the trend continues to make higher-highs and higher-lows over time, while the downtrend is drawn down and to the right as the trend continues to make lower-highs and lower-lows over time.
The most basic definition of a trend is a typical uptrend (downtrend) will need two highs (lows) to provide evidence of a trend and three highs (lows) to confirm that the trend is valid. Another important point about trends is that the longer a trend has been intact, and the greater the number of times it has been tested (the number of times that the support or resistance levels have held after being reached), the greater the significance of the trend and the less likely that the trendline will be broken.